15% drop in profitability of Moscow's hotels

According to the results of firstnine months of this year, we may say that the activity of Moscow hotels, operating under the international brands has become worse under the influence of sanctions. During this period of time, the RevPAR index (income per number of rooms available) of Moscow hotels has come 10% down in roubles in comparison with the same period last year. Moreover, the collapse wasn’t so suggestive until this June and made up only 5%, whereas, in the beginning of summer the negative trend became stronger and the lapse between the previous year has increased twice. Thus, for the first three months, from June to August, we could observe the collapse of RevPAR index of more than 15%. According to the words of David Jenkins, the Head of the Department of Accommodation Business of JLL Company, the influence of the sanctions, unstable political situation and variable exchange rate are exerting pressure on the hotel market of Russia in the very height of the season.

The rising operating expenses are influencing the index of gross operating income in a negative way. At the same time, the accommodation requirements are decreasing because of the political situation and despite the fact that the drop in rouble exchange rate makes Russian hotels more accessible for foreign tourists.

The table of rates for deluxe class residential property market segment has reduced by 2% since the beginning of 2014, while the capacity cut down by 6%. The profitability in the segment decreased by 8% by the moment and the negative trend will continue to grow until the end of the year. A similar situation could be followed in the top segment of hotels: the reduction in 7% since the beginning of the year. The average price increased by 3% and approached almost 10 thousand rubles, while we can still easily observe a significant collapse in the demand.

The retrogress in the demand during the summer period has increased by 17% if compared to the previous year and that could be also associated with a significant drop in the tourist flow. We hope, that business travelers who are usually less affected by the political situation, will continue to travel to the city, especially in the last quarter when they traditionally buy in and make a budget for the next year.

Above all, the current marketing situation influenced the high-end segment, which is not surprising. This is the most competitive segment in the hotel market of Russia; almost 25% of the total number of branded rooms in the city could belong to it. Their profitability has increased by 14% since the beginning of the year, which in its turn caused the reduction in the level of capacity. According to the words of David Jenkins, 2014 year is the most disastrous year for this very segment since 2010. RevPAR in the summer period has increased by almost 20% - says the expert.

The situation with upper midscale hotels doesn't look that depressing. These accommodation facilities managed to maintain their sales at 70% of the total capacity while reducing their rates by 4% and taking a share of business away from the hi-end segment. As a result, the upper midscale segment shows a better dynamics on Moscow's hotel market in 2014. In middle class hotels the number of occupied rooms has gone 2.5% down; and at the end of the year's first three quarters has been only slightly short of 70%. "These figures show that the demand for hotel accommodation in Moscow is still there; it's only a matter of price" - notes the expert.

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